CONSOLIDATED DEPARTMENTAL FINANCIAL STATEMENTS …

CONSOLIDATED DEPARTMENTALFINANCIAL STATEMENTS2017-2018(UNAUDITED)

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CONSOLIDATED DEPARTMENTAL FINANCIAL STATEMENTS 2017–2018 (UNAUDITED) 1

Statement of Management Responsibility Including Internal Control Over Financial Reporting (UNAUDITED)

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended

March 31, 2018, and all information contained in these statements rests with the management of the Department

of National Defence (department). These financial statements have been prepared by management using the

Government of Canada’s accounting policies, which are based on Canadian public sector accounting standards

(PSAS), with the exception of the accounting for pension benefits where the presentation and results using the

stated accounting policies do not result in any significant differences from PSAS.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some

of the information in the financial statements is based on management’s best estimates and judgment, and gives

due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a

set of accounts that provides a centralized record of the department’s financial transactions. Financial information

submitted in the preparation of the Public Accounts of Canada, and included in the department’s Departmental

Results Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of Internal Control over Financial Reporting

(ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded

and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and

other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection,

training, and development of qualified staff; through organizational arrangements that provide appropriate divisions

of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and

managerial authorities are understood throughout the department; and through conducting an annual risk-based

assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an on-going process to identify,

assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2018 was completed in accordance

with the Treasury Board Policy on Financial Management and the results and action plans are illustrated in the annex.

The effectiveness and adequacy of the department’s system of internal control is reviewed by the work of internal audit

staff, who conduct periodic audits of the different areas of the department’s operations, and by the Departmental Audit

Committee, which oversees management’s responsibilities for maintaining adequate control systems and the quality of

financial reporting, and which recommends the financial statements to the Deputy Minister.

The financial statements of the department have not been audited.

Claude Rochette CPA, CMA

Chief Financial Officer

Jody Thomas

Deputy Minister

Ottawa, Canada Date: August 22, 2018

2 CONSOLIDATED DEPARTMENTAL FINANCIAL STATEMENTS 2017–2018 (UNAUDITED)

As at March 31

Consolidated Statement of Financial Position (Unaudited)

(in thousands of dollars) 2018

2017(Restated note 20)

Liabilities

Accounts payable and accrued liabilities (note 4) 3,299,608 2,126,892

Vacation pay and compensatory leave 188,617 178,276

Environmental liabilities (note 5) 613,538 720,489

Deposits and trust accounts (note 6) 4,506 4,350

Deferred revenue (note 7) 9,842 12,200

Canadian Forces pension and insurance accounts (note 8) 696,823 709,293

Lease obligations for tangible capital assets (note 9) 169,849 241,012

Employee future benefits (note 10) 654,463 772,285

Total liabilities 5,637,246 4,764,797

Financial assets

Due from Consolidated Revenue Fund 2,731,536 2,314,969

Accounts receivable (note 11) 979,489 449,594

Loans and advances (note 12) 46,132 50,326

Total gross financial assets 3,757,157 2,814,889

Financial assets held on behalf of government

Accounts receivable (note 11) (5,642) (5,232)

Total financial assets held on behalf of government (5,642) (5,232)

Total net financial assets 3,751,515 2,809,657

Departmental net debt 1,885,731 1,955,140

Non-financial assets

Prepaid expenses (note 13) 645,712 728,397

Inventory (note 14) 5,666,785 5,810,642

Tangible capital assets (note 15) 33,485,695 32,552,926

Total non-financial assets 39,798,192 39,091,965

Departmental net financial position 37,912,461 37,136,825

Contingent liabilities (note 16)Contractual obligations and contractual rights (note 17)

The accompanying notes form an integral part of these financial statements.

Claude Rochette CPA, CMA

Chief Financial Officer

Jody Thomas

Deputy Minister

Ottawa, Canada Date: August 22, 2018


For the year ended March 31

Consolidated Statement of Operations and Departmental Net Financial Position (unaudited)

(in thousands of dollars)

2018Planned Results 2018

2017(Restated note 20)

Expenses

Defence Combat and Support Operations 1,295,658 1,915,252 1,527,724

Defence Services and Contributions to Government 464,429 521,353 435,910

Defence Ready Force Element Production 3,621,102 4,903,530 3,862,060

Defence Capability Element Production 13,773,701 14,684,269 13,000,969

Defence Capability Development and Research 425,026 544,447 453,908

Internal Services 492,719 629,704 422,064

Total expenses 20,072,635 23,198,555 19,702,635

Revenues

Sale of goods and services 397,774 384,421 409,778

Gains on disposals of assets 21,064 27,067 18,291

Other 80,023 13,698 14,779

Interest and gains on foreign exchange 9,913 18,912 15,170

Revenues earned on behalf of government (25,851) (10,387) (10,192)

Total revenues 482,923 433,711 447,826

Net cost of operations 19,589,712 22,764,844 19,254,809

Government funding and transfers

Net cash provided by government 22,250,082 19,107,537

Change in due from Consolidated Revenue Fund 416,567 (482,896)

Services provided without charge by other government departments (note 18)

858,983 773,556

Transfer of Accounts receivable to Public Services and Procurement Canada

(16) (14)

Transfer of assets and liabilities from other government departments (note 15)

14,864 195

Net cost of operations after government funding and transfers (775,636) (143,569)

Departmental net financial position – beginning of year 37,136,825 36,993,256Departmental net financial position – end of year 37,912,461 37,136,825

Segmented information (note 19)


Comparative figures have been reclassified to conform to the current year’s presentation.



Consolidated Statement of Change in Departmental Net Debt (Unaudited)


2017 (Restated note 20)

Net cost of operations after government funding and transfers (775,636) (143,569)

Change due to tangible capital assets

Acquisition of tangible capital assets 3,512,577 2,757,236

Amortization of tangible capital assets (2,527,550) (2,624,309)

Proceeds from disposal of tangible capital assets (23,774) (18,274)

Loss on disposals of tangible capital assets (90,260) (167,918)

Adjustments of tangible capital assets 46,912 55,269

Transfer from other government departments 14,864 195

Total change due to tangible capital assets 932,769 2,199

Change due to inventory (143,857) (253,475)

Change due to prepaid expenses (82,685) 84,239

Net decrease in departmental net debt (69,409) (310,606)

Departmental net debt – beginning of year 1,955,140 2,265,746

Departmental net debt – end of year 1,885,731 1,955,140




Consolidated Statement of Cash Flow (Unaudited)



Operating activities

Net cost of operations before government funding and transfers 22,764,844 19,254,809

Non-cash items included in net cost of operations:

Amortization of tangible capital assets (2,527,550) (2,624,309)

Loss on disposals of tangible capital assets (90,260) (167,918)


Services provided without charge by other government departments (858,983) (773,556)

Transition payments for implementing salary payments in arrears 16 14

Variations in Statement of Financial Position:

Increase (decrease) in accounts receivable 529,485 53,259

Increase (decrease) in loans and advances (4,194) 11,274

Increase (decrease) in prepaid expenses (82,685) 84,239

Increase (decrease) in inventory (143,857) (253,475)

Decrease (increase) in accounts payable and accrued liabilities (1,172,716) 477,402

Decrease (increase) in vacation pay and compensatory leave (10,341) (1,348)

Decrease (increase) in environmental liabilities 106,951 70,955

Decrease (increase) in deposits and trust accounts (156) (78)

Decrease (increase) in deferred revenue 2,358 617

Decrease (increase) in Canadian Forces pension and insurance accounts 12,470 (14,075)

Decrease (increase) in employee future benefits 117,822 128,516

Cash used in operating activities 18,690,116 16,301,595

Capital investing activities

Acquisitions of tangible capital assets 3,512,577 2,757,236

Proceeds from disposal of tangible capital assets (23,774) (18,274)

Cash used in capital investing activities 3,488,803 2,738,962

Financing activities

Lease payments for tangible capital assets 71,163 66,980

Cash used in financing activities 71,163 66,980

Net cash provided by Government of Canada 22,250,082 19,107,537



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


1. Authority and objectives

> Authorities

The Department of National Defence (department) was

established by the National Defence Act (NDA). Under

section 3 of the NDA, the Minister of National Defence

presides over the department. Under section 4 of the

NDA, the Minister has the management and direction of

the Canadian Forces and of all matters relating to National

Defence, as well as being responsible for the construction

and maintenance of all defence establishments and works

for the defence of Canada, and research relating to the

defence of Canada and to the development of and

improvements in materiel.

> Objectives

Strong, Secure, Engaged is the new defence policy

presenting a new vision and approach to defence by

the Government of Canada. Strong, Secure, Engaged

presents a new strategic vision in which Canada is:

• strong at home, its sovereignty well defended by a

Canadian Armed Forces ready to assist in times of

natural disaster, other emergencies and search and

rescue;

• secure in North America, active in a renewed defence

partnership in the North American Aerospace Defense

Command and with the United States; and

• engaged in the world, with the Canadian Armed

Forces doing its part in Canada’s contributions to a

more stable, peaceful world, including through peace

support operations and peacekeeping.

Effective fiscal year 2014-15, Defence implemented a new

Program Alignment Architecture (PAA) that more

accurately represents and articulates the “Business of

Defence”. It describes what Defence provides to and for

Canadians while also illustrating how those effects are

created and delivered. This revised structure better

positions Defence to address program granularity and

interdependencies required for strategic reviews and to

institutionalize a “Management for Results” paradigm that

supports the strategic management of Defence. It also

provides a structure that better lends itself to conveying

Defence’s performance story and demonstrating results.

The activities associated with the programs were aligned,

and in many cases regrouped, in the new PAA as:

(a) Defence Combat and Support Operations

The Defence Combat and Support Operations Program

delivers military power in combat, security, stability and

surveillance operations in response to armed threats, or

potential armed aggression, for the purpose of protecting

Canadian sovereignty, upholding the values of Canadians,

and defending the interests of the Government of

Canada. Results are achieved through this program by

the application of Defence capabilities in domestic,

continental and international domains, either

independently or in combination with allies, where the

primary focus is to inflict military effects against threats.

The term Defence capability is a collective term that

refers to the ability of a military force to achieve a desired

effect against a threat during the execution of a Defence

operation (or the delivery of a Defence service) by

executing tasks according to understood concepts,

doctrines and standards. The military forces delivered by

Defence are composed of force elements which are

organizational entities that are in-turn composed of

members of the CAF, and in some cases personnel from

the department.

Force elements integrate people, with specialized

information and expertise, materiel (e.g., equipment,

platforms, and weapon systems) and in some cases real

property, so that capabilities can be applied against

threats. Force elements have different sizes and

compositions according to the capabilities they must

apply during an operation.

This program is underpinned by the NDA, defence policy,

international treaties and agreements, membership in

international organizations, and direction received by the

Government of Canada. The sub-programs beneath this

program target a range of threats across a variety of




operational contexts via different delivery mechanisms in

different geographic regions.

(b) Defence Services and Contributions to Government

The Defence Services and Contributions to Government

Program aims to support the delivery of Canadian

government safety and security initiatives and encourage

recognition and pride in Canada and the Canadian

military. This is accomplished through the provision of

unique Defence services in support of other elements of

government or the Canadian public.

To encourage and share pride and awareness of Canada’s

military heritage, contributions, and leadership, Defence

provides unique services and opportunities for outreach,

awareness, preservation and development. Defence’s

unique services also include operations conducted to

ensure or enhance the security, safety, stability and/or

well-being of Canadians, or international populations in

peril, in accordance with Canadian values and the

interests of the Canadian government, in situations

where there may be a need to defend against armed

threats but where this is not the primary focus.

The operations are delivered through the employment

of force elements to achieve a desired effect within

specific contexts through execution of tasks according to

understood concepts, doctrines and standards. The force

elements delivered by Defence are organizational entities

which are composed of members of the CAF and in some

cases personnel from the department. Force elements

have different sizes and compositions according to the

capabilities they must apply during an operation.

Defence remains consistently ready to employ force

elements under this program; however, significant

operations do not always occur every fiscal year.

(c) Defence Ready Force Element Production

The Defence Ready Force Element Production Program

produces and renews force elements on a continual basis

for use in Defence Combat and Support Operations, as

well as for the delivery of Defence Services and

Contributions to Government, in order to increase the

likelihood of success and decrease risk of failure in the

defence of Canada and promotion of Canadian interests.

Results are delivered by assembling force elements

from the fundamental elements of Defence capability

(i.e. military personnel, materiel and information systems,

information, and, in some cases, real property), and

integrating them through various training and

certification programs so that they have the requisite

amount of readiness in order to fulfill predefined roles

within the operations for which they are destined.

The term readiness refers to the volume, endurance,

responsiveness and capability attributes of force

elements that are not employed. These attributes are

used to determine the degree of risk that would be

associated with assigning them to fulfill perspective

role(s) within on-going or contingency operations.

The force elements produced by the Defence Ready

Force Element Production Program are organized into

portfolios according to the maritime, land, aerospace and

special operations environments in which they operate.

There are also portfolios for force elements that operate

jointly across these domains and force elements that

provide common support functions.

Across these portfolios, force elements are produced to

meet readiness targets. These readiness targets ensure

that production can be sustained over short- and

medium-term time horizons and that the number of

force elements available for employment in on-going

and contingency operations is in accordance with

acceptable levels of operational risk.

(d) Defence Capability Element Production

The Defence Capability Element Production Program

aims to sustain Defence by producing and maintaining

portfolios of the fundamental Defence capability

elements so that they are continuously available in

the appropriate quantity, combination and condition

to sustain the chain of programs delivered by Defence,

from the Defence Capability Development and Research

Program through to the Defence Ready Force Element

Production Program.




These programs collectively give Defence the ability to

conduct Defence Combat and Support Operations as

well as deliver Defence Services and Contributions to

Government. The primary elements of Defence capability

are military personnel, materiel and information systems,

information, and real property. A fundamental focus of

the Defence Capability Element Production Program is to

provide an adequate and sustained supply of individual

military personnel and materiel in the near-term and over

long-term time horizons so that they can be integrated to

produce force elements within the Defence Ready Force

Element Production Program.

Results are achieved through subordinate programs, each

of which focuses on a separate portfolio: military

personnel and organization; materiel; real property; or

information systems. A lifecycle approach is used to

manage each portfolio. The essential aspects of the

lifecycle approach are sub-sub-programs that provide the

principle lifecycle functions: introduction into service;

maintenance, upgrade and supply; release from service;

portfolio management; and overarching co-ordination

and control. The character of activity that occurs within

each of these primary functions depends on the portfolio

of entities being produced and therefore the

desegregation of the lifecycle functions into sub-sub-

programs is unique to each portfolio. The authority for

this program is derived from the NDA.

(e) Defence Capability Development and Research

The Defence Capability Development and Research

Program seeks to provide the analytical basis and

knowledge to anticipate foreseeable changes in the

threat and security environment and to determine the

associated demand for Defence capabilities across

near- and long-term time horizons in order to enable

evidence-based strategic decisions that align the

introduction, modification and divestment of Defence

capabilities and guide the application of existing

capabilities with an acceptable level of risk.

Results are achieved by: establishing and monitoring the

fulfillment of near-term targets for readying force

elements and conducting Defence operations; identifying

lessons from past operations; assessing defence and

security trends; developing and integrating new

knowledge and systems/methods for conducting

operations; developing approaches and conducting

Defence capability analyses at strategic, operational and

tactical levels; present to future capability assessments;

designing and assessing defence alternatives; providing

Defence capability oversight and expertise; and Defence

capability use planning for sustainable Defence

capabilities in future time horizons.

As such, this program sustains Defence by providing key

products and services to the Defence Capability Element

Production Program, the Defence Ready Force Element

Production Program and parts of the Defence Combat

and Support Operations, and Defence Services and

Contributions to Government Programs.

This program also directly enables the management and

oversight of Defence as a whole.

(f) Internal Services

Internal Services are groups of related activities and

resources that are administered to support the needs of

programs and other corporate obligations of an

organization. Internal services include only those activities

and resources that apply across an organization, and not

those provided to a specific program. The groups of

activities are Management and Oversight Services;

Communications Services; Legal Services; Human

Resources Management Services; Financial Management

Services; Information Management Services; Information

Technology Services; Real Property Services; Materiel

Services; and Acquisition Services.




2. Summary of significant accounting policies

These financial statements have been prepared using the

government’s accounting policies stated below, which are

based on Canadian public sector accounting standards

(PSAS), with the exception of the accounting for pension

benefits where the presentation and results using the

stated accounting policies do not result in any significant

differences from PSAS. The pension benefits for

members of the CAF follow accounting requirements as

outlined in the Treasury Board Accounting Standards, as

described in note 2(g) (i), which require the actuarial

surpluses or deficiencies to be recognized in the financial

statements of the Government of Canada, and not the

department. Further disclosure is presented in note 8.

Significant accounting policies are as follows:

(a) Parliamentary authorities

The department is financed by the Government of

Canada through parliamentary authorities. Financial

reporting of authorities provided to the department do

not parallel financial reporting according to generally

accepted accounting principles since authorities are

primarily based on cash flow requirements. Consequently,

items recognized in the Consolidated Statement of

Operations and Departmental Net Financial Position and

in the Consolidated Statement of Financial Position are

not necessarily the same as those provided through

authorities from Parliament. Note 3 provides a

reconciliation between the bases of reporting. The

planned results amounts in the ”Expenses” and

“Revenues” sections of the Consolidated Statement of

Operations and Departmental Net Financial Position are

the amounts reported in the Future-oriented Statement of

Operations included in the 2017-18 Departmental Plan.

Planned results are not presented in the “Government

funding and transfers” section of the Consolidated

Statements of Operations and Departmental Net Financial

Position and in the Consolidated Statement of Change in

Departmental Net Debt because these amounts were not

included in the 2017-18 Departmental Plan.

(b) Consolidation

These consolidated financial statements include the

accounts of the sub-entities for which the Deputy

Minister (DM) is accountable for. The accounts of these

sub-entities have been consolidated with those of the

department, and all inter-organizational balances and

transactions have been eliminated. The department is

comprised of the DND, the CAF and several related

organizations and agencies in the Defence Portfolio, all of

which carry out the Defence mission and are part of the

Defence Services Program. Organizations and agencies

that are part of these consolidated financial statements

include the following:

• Canadian Cadet Program and the Junior Canadian

Rangers

• Canadian Forces Housing Agency

• Defence Research and Development Canada

• Office of the Ombudsman for the Department of

National Defence and Canadian Forces

• Office of the Judge Advocate General

The Military Grievances External Review Committee, the

Military Police Complaints Commission, Communications

Security Establishment Canada and the Office of the

Communications Security Establishment Commissioner

are excluded from the consolidation because these

organizations are not part of the Defence Services

Program, although they fall under the responsibility of

the Minister of National Defence.

(c) Net cash provided by Government

The department operates within the Consolidated

Revenue Fund (CRF), which is administered by the

Receiver General for Canada. All cash received by the

department is deposited to the CRF, and all cash

disbursements made by the department are paid from

the CRF. The net cash provided by the government

is the difference between all cash receipts and cash

disbursements, including transactions between

departments of the government.




(d) Amounts due from or to the CRF

Amounts due from or to the CRF are the result of timing

differences at year-end between when a transaction

affects authorities and when it is processed through the

CRF. Amounts due from the CRF represent the net

amount of cash that the department is entitled to draw

from the CRF without further authorities to discharge

its liabilities.

(e) Revenues

• Revenues from regulatory fees are recognized in the

accounts based on the services provided in the year.

• Funds received in advance from external parties for

the delivery of goods and rendering of services are

recorded upon receipt as deferred revenue. Revenues

are then recognized in the period in which the related

expenses are incurred.

• Other revenues are accounted for in the period in

which the underlying transaction or event that gave

rise to the revenue takes place.

Revenues that are non-respendable are not available to

discharge the department’s liabilities. While the DM is

expected to maintain accounting control, she has no

authority regarding the disposition of non-respendable

revenues. As a result, non-respendable revenues are

considered to be earned on behalf of the Government of

Canada and are therefore presented in reduction of the

entity’s gross revenues.

(f) Expenses

Expenses are recorded on an accrual basis:

• Transfer payments are recorded as expenses when

authorization for the payment exists and the recipient

has met the eligibility (or the entitlements) criteria (for

grants) or the performance conditions (for

contributions) established for the transfer payment

program. In situations where grant payments do not

form part of an existing program, payments are

recorded as expenses when the government announces

a decision to make a non-recurring transfer, provided

the enabling legislation or authorization for payment

receives parliamentary approval prior to the completion

of the financial statements.

• Vacation pay and compensatory leave are accrued as

the benefits are earned by employees under their

respective terms of employment.

• Services provided without charge by other government

departments for accommodation, employer

contributions to the health and dental insurance plans,

worker’s compensation coverage and legal services are

recorded as operating expenses at their estimated cost.

(g) Employee future benefits

(i) Pension benefits

Eligible civilian employees participate in the Public

Service Pension Plan, a multi-employer plan

administered by the Government of Canada. The

department’s contributions to the Plan are charged to

expenses in the year incurred and represent the total

departmental obligation to the Plan. The department’s

responsibility with regard to the Plan is limited to its

contributions as determined by the Chief Actuary of

Canada. Actuarial surpluses or deficiencies are

recognized in the financial statements of the

Government of Canada, as the Plan’s sponsor.

The department administers pension benefits for

members of the CAF, both Regular and Reserve

forces. The department contributes towards current

and past service of members, and funds any actuarial

shortfalls determined by the Chief Actuary of Canada.

In addition to the regular contributions, current

legislation also requires the department to make

contributions for actuarial deficiencies in the pension




plans. These contributions by the department are

expensed in the year they are incurred. This

accounting treatment corresponds to the funding

provided to departments through Parliamentary

authorities. All assets and liabilities related to the CAF

pension plan are not reflected in the department’s

financial statements. As the Plan’s sponsor, the

Government of Canada, recognises the plans assets

and the actuarial estimate of the liabilities in the

consolidated financial statements of the Government

of Canada.

(ii) Severance benefits

The accumulation of severance benefits for voluntary

departures ceased for applicable employee groups

and CAF members. The remaining obligation for

employees who did not withdraw benefits is

calculated using information derived from the results

of the actuarially determined liability for employee

severance benefits for the government as a whole.

The obligation related to the severance benefits

earned by CAF members is calculated using

information derived from the results of the actuarially

determined liability for severance benefits for the

CAF population.

(h) Accounts and loans receivable

Accounts and loans receivable are stated at the lower of

cost and net recoverable value. A valuation allowance is

recorded for receivables where recovery is considered

uncertain.

(i) Inventory

Inventories are valued at cost, using a weighted average

formula, and are comprised of ammunition and inventory

supplies held for future program delivery and are not

primarily intended for resale. Inventory managed by

contractors and not held in the Defence Resource

Management Information System (DRMIS) is valued

according to the cost method used by the contractors

(first-in, first-out (FIFO), last-in, first-out (LIFO), historical

cost or moving weighted average). Inventory identified

for disposal or surplus are excluded from the value of

inventory as no value is expected to be recovered (for

details, see note 14).

(j) Tangible capital assets

The costs of acquiring land, buildings, equipment and

other capital property are capitalized as tangible capital

assets and, except for land, are amortized to expense over

the estimated useful lives of the assets, as described in

Note 15. All tangible capital assets and leasehold

improvements having an initial cost of $30,000 or more

are recorded at their acquisition cost. Tangible capital

assets do not include works of art and historical treasures

that have cultural, aesthetic or historical value, assets

located on First Nations reserves and museum collections.

Asset Pooled Items (API) are tangible capital assets which

can include spare parts that support higher level tangible

capital assets with useful lives greater than one year. They

are intended to be used on a continuing basis, and are

part of an asset class or pool where items may be below

the capitalization threshold individually but are typically

purchased or held in large quantities. These items are

grouped in pools and the pools are treated as capital

assets from a financial perspective.




Amortization of tangible capital assets is performed on a

straight-line basis over the estimated useful life of the

capital asset as follows:

Asset Class Amortization Period

Buildings 10–40 years

Works 5–40 years

Machinery and equipment 3–30 years

Informatics hardware 3–30 years

Informatics software 2–10 years

Arms and weapons 3–30 years

Other equipment 5–30 years

Ships and boats 10–30 years

Aircraft 20–40 years

Non–military motor vehicles 2–30 years

Military vehicles 3–25 years

Other vehicles 4–30 years

Leasehold improvements Lesser of useful life of the improvement or term of lease

Leased tangible capital assets

Economic life or term of lease

API are amortized at the estimated useful life of the pool.

Assets under construction are recorded in the applicable

capital asset class in the year that they become available

for use and are not amortized until they become available

for use.

(k) Contingent liabilities

Contingent liabilities are potential liabilities, which may

become actual liabilities when one or more future events

occur or fail to occur. To the extent that the future event

is likely to occur or fails to occur, and a reasonable

estimate of the loss can be made, an estimated liability is

accrued and an expense recorded. If the likelihood is not

determinable, the contingency is disclosed in the notes

to the financial statements.

(l) Contingent assets

Contingent assets are possible assets which may become

actual assets when one or more future events occur or

fail to occur. If the future event is likely to occur or fail to

occur, the contingent asset is disclosed in the notes to

the financial statements.

(m) Environmental liabilities

An environmental liability for the remediation of

contaminated sites is recognized when all of the

following criteria are satisfied: an environmental

standard exists, contamination exceeds the

environmental standard, the government is directly

responsible or accepts responsibility, it is expected

that future economic benefits will be given up and

a reasonable estimate of the amount can be made.

The liability reflects the government’s best estimate

of the amount required to remediate the sites to the

current minimum standard for its use prior to

contamination. When the future cash flows required to

settle or otherwise extinguish a liability are estimable,

predictable and expected to occur over extended future

periods, a present value technique is used. The discount

rate used reflects the government’s cost of borrowing,

associated with the estimated number of years to

complete remediation.

A liability for unexploded explosive ordnance (UXO)

affected legacy sites is recognized when there is an

appropriate basis for measurement and a reasonable

estimate can be made. These liabilities are present

obligations arising from past transactions or events, the

settlement of which is expected to result in the future

sacrifice of economic benefits.




The recorded liabilities are adjusted each year, for present

value adjustments, inflation, new obligations, changes in

management estimates and actual costs incurred. If the

likelihood of the government’s responsibility is not

determinable, a contingent liability is disclosed in the

notes to the consolidated statements.

(n) Transactions involving foreign currencies

Transactions involving foreign currencies are translated

into Canadian dollar equivalents using rates of exchange

in effect at the time of those transactions. Monetary

assets and liabilities denominated in a foreign currency

are translated into Canadian dollars using the rate of

exchange in effect at March 31st. Gains resulting from

foreign currency transactions are included as revenues in

Interest and gains on foreign exchange, and losses from

foreign currency transactions are included in other

expenses in the Consolidated Statement of Operations

and Departmental Net Financial Position.

(o) Measurement uncertainty

The preparation of these financial statements requires

management to make estimates and assumptions that

affect the reported amounts of assets, liabilities, revenues

and expenses reported in the financial statements and

accompanying notes at March 31st. At the time of

preparation of these statements, management believes

the estimates and assumptions to be reasonable. The

most significant items where estimates are used are

contingent liabilities, remediation liabilities, the liability

for employee future benefits, allowance for doubtful

accounts, allowances to estimate pricing errors and value

of dormant inventory and the useful life of tangible

capital assets. Actual results could significantly differ

from those estimates. Management’s estimates are

reviewed periodically and, as adjustments become

necessary, they are recorded in the financial statements

in the year they become known.

Environmental liabilities are subject to measurement

uncertainty as discussed in note 5 due to the evolving

technologies used in the estimation of the costs for

remediation of contaminated sites, the use of discounted

present value of future estimated costs, and the fact

that not all sites have had a complete assessment of

the extent and nature of remediation or retirement.

Changes to underlying assumptions, the timing of the

expenditures, the technology employed, or the revisions

to environmental standards or changes in regulatory

requirements could result in significant changes to the

environmental liabilities recorded.

(p) Related party transactions

Related party transactions, other than inter-entity

transactions, are recorded at the exchange amount.

Inter-entity transactions are transactions between

commonly controlled entities. Inter-entity transactions,

other than restructuring transactions, are recorded on a

gross basis and are measured at the carrying amount,

except for the following:

(i) services provided on a recovery basis are

recognized as revenues and expenses on a gross

basis and measured at the exchange amount.

(ii) certain services received on a without charge

basis are recorded for departmental financial

statement purposes at the carrying amount.




3. Parliamentary authorities

The department receives most of its funding through annual parliamentary authorities. Items recognized in the

Consolidated Statement of Operations and Departmental Net Financial Position and the Consolidated Statement of

Financial Position in one year may be funded through parliamentary authorities in prior, current or future years.

Accordingly, the department has different net results of operations for the year on a government funding basis than

on an accrual accounting basis. The differences are reconciled in the following tables:

(a) Reconciliation of net cost of operations to current year authorities used



Net cost of operations before government funding and transfers 22,764,844 19,254,809

Adjustments for items affecting net cost of operations but not affecting authorities:

Amortization of tangible capital assets (note 15) (2,527,550) (2,624,309)

Services provided without charge by other government departments (note 18) (858,983) (773,556)

Decrease (increase) in employee future benefits 117,822 128,516

Refund of previous year's expenses 84,580 41,899

Decrease (increase) in vacation pay and compensatory leave (10,341) (1,348)

Loss on disposals of capital assets (90,260) (167,918)


Refund of program expenditures 63,123 37,225

Decrease (increase) in deferred revenue 2,358 617

Decrease (increase) in accrued liabilities not charged to authorities (149,706) (4,080)

Bad debt expense (31,807) (40,238)

Decrease (increase) in environmental liabilities (note 5) 106,951 70,955

Proceeds from sale of assets (23,774) (18,274)

Miscellaneous 20,922 (40,124)

Total items affecting net cost of operations but not affecting authorities (3,249,753) (3,335,366)

Adjustments for items not affecting net cost of operations but affecting authorities:

Acquisition of tangible capital assets (note 15) 3,512,577 2,757,236

Decrease (increase) in lease obligations for tangible capital assets 71,163 66,980

Increase (decrease) in inventory purchases net of usage and adjustments (143,857) (253,475)

Increase (decrease) in prepaid expenses (82,685) 84,239

Transition payments for implementing salary payments in arrears 16 14

Revenues collected from prior year receivables 4,782 31,717

Total items not affecting net cost of operations but affecting authorities 3,361,996 2,686,711 Current year authorities used 22,877,087 18,606,154




3. Parliamentary authorities (continued)

(b) Authorities provided and used

(in thousands of dollars) 2018 2017

Vote 1 – Operating expenditures 16,050,430 14,304,176

Vote 5 – Capital expenditures 3,885,528 3,504,238

Vote 10 – Grants & contributions 177,004 162,993

Statutory amounts 3,464,975 1,498,958

Less:

Authorities available for future years (676,686) (807,671)

Frozen allotments and other planned lapses (24,164) (56,540)

Current year authorities used 22,877,087 18,606,154

4. Accounts payable and accrued liabilities

The following table presents details of the department’s accounts payable and accrued liabilities:


Accounts payable – other government departments and agencies 91,218 129,051

Accounts payable – external parties 2,117,702 1,195,125

Total accounts payable 2,208,920 1,324,176

Accrued liabilities 1,090,688 802,716

Total accounts payable and accrued liabilities 3,299,608 2,126,892




5. Environmental liabilities

(a) Remediation of contaminated sites

The government’s “Federal Approach to Contaminated

Sites”, sets out a framework for management of

contaminated sites using a risk-based approach. Under

this approach the government has inventoried the

contaminated sites identified on federal lands, allowing

them to be classified, managed and recorded in a

consistent manner. This systematic approach aids in

identification of the high risk sites in order to allocate

limited resources to those sites which pose the highest

risk to human health and the environment.

The department has identified approximately of 999 sites

(1,073 sites in 2016-17) where contamination may exist and

assessment, remediation and monitoring may be required.

Of these, the department has identified approximately

255 sites (279 sites in 2016-17) where action is required and

for which a gross liability of $456,079,238 ($509,885,970 in

2016-17) has been recorded. This liability estimate has been

determined based on site assessments performed by

environmental experts.

In addition, a statistical model based upon a projection of

the number of sites that will proceed to remediation and

upon which current and historical costs are applied is used

to estimate the liability for a group of unassessed sites.

As a result, there are approximately 216 unassessed sites

(226 in 2016-17) where a liability estimate of $35,333,838

($26,753,843 in 2016-17) has been recorded using this

model.

These two estimates combined, totaling $491,413,076

($536,639,813 in 2016-17), represents management’s best

estimate of the costs required to remediate the sites to

the current minimum standard for its use prior to

contamination, based on the information available at

the financial statement date.

For the remaining 528 sites (568 sites in 2016-17), no

liability for remediation has been recognized. Some of

these sites are at various stages of testing and evaluation

and if remediation is required, liabilities will be reported

as soon as a reasonable estimate can be determined. For

other sites, the department does not expect to give up

any future economic benefits (there likely is no significant

environmental impact or human health threats). These

sites will be re-examined and a liability for remediation

will be recognized if future economic benefits will be

given up.

The following table presents the total estimated amounts

of these liabilities by nature and source, the associated

expected recoveries and the total undiscounted future

expenditures as at March 31, 2018, and March 31, 2017.

When the liability estimate is based on a future cash

requirement, the amount is adjusted for inflation using

a forecast CPI rate of 1.9% (2% in 2016-17). Inflation is

included in the undiscounted amount. The Government

of Canada’s cost of borrowing by reference to the actual

zero-coupon yield curve for Government of Canada

bonds has been used to discount the estimated future

expenditures. The March 2018 rates range from 1.79%

(0.76% in 2017) for a 2 year term to 2.24% (2.39% in 2017)

for a 30 or greater year term.




5. Environmental liabilities (continued)

(a) Remediation of contaminated sites (continued)

2018

Nature and sourceNumber of

sitesEstimated

liability

Estimated undiscounted

expenditure

Military and Former Military Sites(1) 354 329,710,714 350,031,882

Fuel Related Practices(2) 358 36,598,862 39,068,128

Landfill / Waste Sites(3) 138 29,814,018 31,978,355

Engineering Assets / Air and Land Transportation(4) 10 806,500 881,577

Marine Facilities / Aquatic Sites(5) 19 4,970,690 6,319,134

Office / Commercial / Industrial Operations(6) 52 17,682,998 21,804,908

Other(7) 68 71,829,294 76,748,533

Totals 999 491,413,076 526,832,517

2017

Nature and sourceNumber of

sitesEstimated

liability

Estimated undiscounted

expenditure

Military and Former Military Sites(1) 371 379,324,959 394,376,543

Fuel Related Practices(2) 386 36,109,323 38,228,759

Landfill / Waste Sites(3) 154 37,748,626 39,431,706

Engineering Assets / Air and Land Transportation(4) 10 907,985 1,077,986

Marine Facilities / Aquatic Sites(5) 20 12,936,991 13,043,182

Office / Commercial / Industrial Operations(6) 64 19,239,779 19,432,096

Other(7) 68 50,372,150 53,084,323

Totals 1073 536,639,813 558,674,595

(1) Contamination associated with the operations of military and former military sites where activities such as fuel handling

and storage activities, waste sites, metals/PCB-based paint used on buildings resulted in former or accidental contamination,

e.g. petroleum hydrocarbons, PCBs, heavy metals. Sites often have multiple sources of contamination.

(2) Contamination primarily associated with fuel storage and handling, e.g. accidental spills related to fuel storage tanks or

former fuel handling practices, e.g. petroleum hydrocarbons, polyaromatic hydrocarbons and BTEX (benzene, toluene,

ethlybenzene and xylenes).

(3) Contamination associated with former landfill/waste site or leaching from materials deposited in the landfill/waste site,

e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons, BTEX, other organic contaminants, etc.




5. Environmental liabilities (continued)

(a) Remediation of contaminated sites (continued)(4) Contamination associated with the operations of engineered assets such as airports, railways and roads where activities such

as fuel storage/handling, waste sites, firefighting training facilities and chemical storage areas resulted in former or accidental

contamination, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons, BTEX and other organic contaminants. Sites

often have multiple sources of contamination.

(5) Contamination associated with the operations of marine assets, e.g. port facilities, harbours, navigation systems, light stations,

hydrometric stations, where activities such as fuel storage/handling, use of metal based paint (e.g. on light stations) resulted in

former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons and other organic

contaminants. Sites often have multiple sources of contamination.

(6) Contamination associated with the operations of office/commercial/industrial facilities where activities such as fuel storage/

handling, waste sites and use of metal based paint resulted in former or accidental contamination, e.g. metals, petroleum

hydrocarbons, polyaromatic hydrocarbons, BTEX, etc. Sites often have multiple sources of contamination.

(7) Contamination from other sources, e.g. use of pesticides, herbicides, fertilizers at agricultural sites; use of PCBs, firefighting

training areas, firing ranges and training facilities, etc.

Also during the year 149 sites (121 sites in 2016-17) were

closed as they were either remediated or assessed to

confirm that they no longer meet all the criteria required

to record a liability for contaminated sites.

(b) Other environmental liabilities

The department has identified approximately 643

unexploded explosive ordnance (UXO) suspected sites

(635 sites in 2016-17) for which clearance action may be

necessary. Of these sites, 43 sites (68 sites in 2016-17) are

confirmed UXO affected sites. Based on the department’s

best estimates, a liability of $122 million ($184 million in

2016-17) has been recorded for clearance action on 10

sites of the confirmed UXO sites (10 sites in 2016-17).

Remediation has been done on 7 of the sites

(7 of the sites in 2016-17). The remaining 633 suspected

sites (624 sites in 2016-17) are currently in the assessment

stage and a reasonable estimate cannot yet be determined.

Of these sites, the obligation for clearance action is likely

for 33 sites, indeterminable for 78 sites and unlikely for

522 sites.

The department’s ongoing efforts to assess contaminated

sites and UXO affected sites may result in additional

environmental liabilities.




6. Deposits and trust accounts

The following table presents details of the department’s deposits and trust accounts:


Contractor security deposits

Deposits, beginning of year 3,884 3,498

Deposits received 7,838 7,764

Refunds (7,918) (7,378)

Contractor security deposits, end of year 3,804 3,884

Trust account, estates – Armed Services*

Trust account, beginning of year 466 774

Funds received 1,750 925

Payments (1,514) (1,233)

Trust account, estates – Armed Services, end of year 702 466

Closing balance 4,506 4,350

* The trust account, estates – Armed Services was established to record the service estates of deceased members of the Canadian

Forces pursuant to section 42 of the National Defence Act. Net assets of estates are distributed to legal heirs under the

administration of the Judge Advocate General, in his capacity as Director of Estates.

7. Deferred revenue

Deferred revenue represents the balance at year-end of unearned revenues stemming from amounts received from

external parties which are restricted in order to fund the expenditures related to amounts received for fees prior to

services being performed. Revenue is recognized in the period in which these expenditures are incurred or in which

the service is performed. Details of the transactions related to this account are as follows:


Foreign governments

Beginning of year 6,270 6,341

Funds received 177,274 155,394

Revenue recognized (179,115) (155,465)

Foreign governments, end of year 4,429 6,270

Other specified purposes


Funds received 4,238 2,121

Revenue recognized (4,755) (2,667)

Other specified purposes, end of year 5,413 5,930





8. Canadian Forces pension and insurance accounts

Established in 1901 under the Militia Pension Act, the

present Canadian Forces pension plans (the “CF pension

plans”) are administered in accordance with the provisions

of the Canadian Forces Superannuation Act. The Canadian

Forces pension plan (CFPP) covers all members of the

Regular Force component of the CAF. Reserve Force

members who have sufficient qualifying service and

pensionable earnings are members of either the CFPP or

the Reserve Force pension plan (RFPP), which came into

force on March 1, 2007, depending on their employment

status and earnings.

The department maintains accounts to record the

transactions pertaining to the CF pension plans, which

comprise the Canadian Forces Superannuation Account

(the “Superannuation Account”), the Canadian Forces

Pension Fund Account (CFPF), the Retirement

Compensation Arrangement Account (RCA), and the

Reserve Force Pension Fund Account (RFPF). These

accounts record transactions such as contributions,

benefit payments, interest credits, refundable taxes,

actuarial funding adjustments resulting from triennial

reviews, and transfers to the Public Sector Pension

Investment Board (PSPIB).

The value of the liabilities reported in these financial

statements does not include the actuarial value of the

liabilities determined by the Chief Actuary of the Office

of the Superintendent of Financial Institutions nor the

details of the investments that are held by PSPIB.

Additional information on the CF pension plans, including

audited financial statements, is published in the Annual

Report of the Canadian Forces Pension Plans, which is

available through the department. For further information

on PSPIB, please visit www.pspib.ca.

The CFPF and the RFPF do not earn interest. The Pension

Fund Accounts are merely flow through accounts. At

year-end, the balances in the Pension Fund Accounts

represent net contributions transferable to PSPIB.

The department also maintains the Regular Force Death

Benefit Account, which provides life insurance to

contributing members and former members of the CAF.

This account records contribution, premiums, interest,

and benefit payments.

The RCA records transactions for pension benefits that

are provided in excess of those permitted under the

Income Tax Act. The RCA is registered with Canada

Revenue Agency (CRA) and a transfer is made annually

between the RCA Account and CRA to either remit a

50 percent refundable tax in respect of the net

contributions and interest credits or to be credited a

reimbursement based on the net benefit payments.

As at March 31, 2018, the total refundable tax transferred

amounts to $426 million ($402 million in 2016-17).




8. Canadian Forces pension and insurance accounts (continued)

The following table provides details of the Canadian Forces pension and insurance accounts liability as presented in

the Statement of Financial Position:


Canadian Forces Pension Fund Account


Funds received and other credits 1,613,514 1,387,813

Payments and other charges (795,353) (723,932)

Transfers to the Public Sector Pension Investment Board (826,989) (659,149)

Canadian Forces Pension Fund Account, end of year 164,762 173,590

Reserve Force Pension Fund Account

Beginning of year (63,015) (51,192)

Funds received and other credits 79,425 57,155


Reserve Force Pension Fund Account, end of year (83,308) (63,015)

Retirement Compensation Arrangements Account




Retirement Compensation Arrangements Account, end of year 430,166 409,218

Regular Force Death Benefit Account




Regular Force Death Benefit Account, end of year 185,203 189,500


8a. Canadian Forces Superannuation Account

The Superannuation Account was created in order to record notional transactions for service prior to April 01, 2000.

The Superannuation Account does not hold any investment assets. The amount of interest credited on the account is

as though net contributions were invested quarterly in 20 year Government of Canada bonds issued at prescribed

rates and held to maturity.

The assets and liabilities related to the Superannuation Account are not reflected in the department’s Financial

Statements as the Superannuation Account is the responsibility of the Government of Canada.




8a. Canadian Forces Superannuation Account (continued)

Details of the Superannuation Account, including actuarial surpluses or deficiencies, can be found in the Annual

Report of the Canadian Forces Pension Plans and in the Public Accounts of Canada.

The table below does not include the actuarial value of the liabilities determined by the Chief Actuary of the Office of

the Superintendent of Financial Institutions, and is provided for information purposes only to disclose the transactions

and account balance.


Canadian Forces Superannuation Account

Beginning of year 45,208,527 45,695,153

Funds received and other credits 3,663,587 1,984,082

Payments and other charges (2,515,151) (2,470,708)

Canadian Forces Superannuation Account, end of year 46,356,963 45,208,527

9. Lease obligations for tangible capital assets

The department has entered into agreements to lease certain tangible capital assets under capital leases with a cost

of $843 million and accumulated amortization of $693 million as at March 31, 2018 ($847 million and $654 million

respectively as at March 31, 2017). The obligations for the upcoming years include the following:


Total future minimum lease

payments

Imputed interest (4.10%

to 7.74%)

Balance of obligations

2018

Balance of obligations

2017

Buildings 83,344 (19,170) 64,174 74,024

Aircraft 112,357 (6,682) 105,675 166,988

Total 195,701 (25,852) 169,849 241,012

Future minimum lease payments

(in thousands of dollars) 2018-19 2019-20 2020-21 2021-222022-23

and thereafter Total

Buildings 11,780 11,185 10,649 7,636 42,094 83,344

Aircraft 70,106 38,652 3,599 0 0 112,357

Total 81,886 49,837 14,248 7,636 42,094 195,701

The department has also entered into agreements for buildings and aircraft under capital leases (refer to note 15).




10. Employee future benefits

(a) Pension benefits

The department’s Public Service employees participate in

the Public Service Pension Plan (the “Plan”), which is

sponsored and administered by the Government of Canada.

Pension benefits accrue up to a maximum of 35 years at a

rate of 2 percent per year of pensionable service, times

the average of the best five consecutive years of earnings.

The benefits are integrated with Canada/Québec Pension

Plan benefits and they are indexed to inflation.

Both the employees and the department contribute to

the cost of the Plan. Due to the amendment of the Public

Service Superannuation Act following the implementation

of provisions related to Canada’s Economic Action Plan

2012, employee contributors have been divided into two

groups – Group 1 relates to existing plan members as of

December 31, 2012 and Group 2 relates to members

joining the Plan as of January 1, 2013. Each group has a

distinct contribution rate.

The 2017-18 expense amounts to $184.0 million

($178.0 million in 2016-17). For Group 1 members, the

expense represents approximately 1.01 times (1.12 times

in 2016-17) the contributions by employee and, for Group

2 members, approximately 1.00 times (1.08 times in

2016-17) the contributions by employee.

The department’s responsibility with regard to the Plan

is limited to its contributions. Actuarial surpluses or

deficiencies are recognized in the consolidated financial

statements of the Government of Canada, as the Plan’s

sponsor.

The members of the Canadian Armed Forces Regular Force

and eligible members of the Reserve Force participate in

the Canadian Forces pension plan, which is sponsored by

the Government of Canada and administered by the

department. Pension benefits accrue up to a maximum of

35 years at a rate of 2 percent per year of pensionable

service, times the average of the best five consecutive years

of earnings. The benefits are integrated with Canada/

Québec Pension Plan benefits and are indexed to inflation.

The members of the Canadian Armed Forces Reserve

Force who are not eligible for participation in the Canadian

Forces pension plan, may be eligible to participate in the

Reserve Force pension plan, which is sponsored by the

Government of Canada and administered by the

department. Pension benefits accrue at a rate of 1.5 percent

of pensionable earnings during the member’s service, plus

an additional 0.5 percent times the average of the best five

consecutive years of earnings for those members who are

not yet eligible for Canada/Québec Pension Plan benefits.

The benefits are integrated with Canada/Québec Pension

Plan benefits and are indexed to inflation.

Both the members and the department contribute to the

cost of the CF pension plans for both current and prior

service. The 2017-18 expense amounts to $2,870 million

($947.0 million in 2016-17), which represents approximately

4.6 times (1.9 times in 2016-17) the contributions by

employees.

The department is responsible for providing program

management and the day-to-day administration of the

CF pension plans. The actuarial liability and actuarial

surpluses or deficiencies are recognized in the financial

statements of the Government of Canada, as the sponsor

of the CF pension plans.

As a result of the actuarial funding report by the Office

of the Chief Actuary, the President of Treasury Board

has approved:

• Annual actuarial adjustments of $145 million

($170 million in 2016-17) to fund the deficit in the

Canadian Forces Pension Fund Account, and

$5.3 million ($4.2 million in 2016-17) for the Reserve

Force Pension Fund Account until the deficit is funded

as per the triennial funding valuation.

For more information on these adjustments, please

consult the actuarial reports, available at the Office of the

Chief Actuary’s website (http://www.osfi-bsif.gc.ca)




10. Employee future benefits (continued)

(b) Severance benefits

Severance benefits provided to the department’s employees were previously based on an employee’s eligibility, years

of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for

voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were

given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of

benefits upon departure from the public service. By March 31, 2018, substantially all settlements for immediate cash

out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from

future authorities.

The changes in the obligations during the year were as follows:


Public Service Employees

Accrued benefit obligation, beginning of year 83,301 108,701

Expenses for the year 9,464 (15,131)

Benefits paid during the year (6,780) (10,269)

Accrued benefit obligation, end of year 85,985 83,301

Canadian Armed Forces Members

Accrued benefit obligation, beginning of year 688,984 792,100

Expenses for the year (4,966) (22,182)

Benefits paid during the year (115,540) (80,934)

Accrued benefit obligation, end of year 568,478 688,984

Total accrued benefit obligation, end of year 654,463 772,285




11. Accounts receivable

The following table presents details of accounts receivable:


Receivables - External parties 241,225 235,153

Receivables - Other government departments and agencies 787,090 268,293

1,028,315 503,446

Less: allowance for doubtful accounts on receivables from external parties 48,826 53,852

Gross accounts receivable 979,489 449,594

Accounts receivable held on behalf of government (5,642) (5,232)

Net Receivables 973,847 444,362

12. Loans and advances

The following table presents details of loans and advances:


Imprest accounts, standing advances and authorized loans to CAF members 42,939 48,119

Accountable advances (temporary advances) 3,193 2,207

Total loans and advances 46,132 50,326

13. Prepaid expenses

The following table presents details of prepaid expenses:


Foreign Military Purchases(1) 261,453 278,581

Mercury Global Military Wideband Satellite Communications Project 209,015 224,497

Sea Sparrow Missiles 77,697 132,377

NATO Flying Training Canada (NFTC) 71,507 55,140

Building rentals 14,963 16,035

Other purchases 11,077 21,767

Total prepaid expenses 645,712 728,397

(1) Foreign Military Purchases comparative figures have been reclassified to conform to the current year’s presentation.




14. Inventory

The following table presents the details of inventory, measured at cost using the moving weighted average method

except for inventory managed by contractors and not held in Defence Resource Management Information System

(DRMIS), which is valued according to the cost method used by the contractors:

(in thousands of dollars) 2018 2017*

Ammunition, bombs and missiles 3,011,575 3,360,962

Uniforms and clothing 387,850 412,711

Contractor held inventory 338,133 346,720

Metal 307,823 291,017

Communication, electrical parts/accessories and informatics equipment 306,328 248,309

Engineering, test and technical equipment and machine tools 259,269 221,989

Ship spares 206,490 195,282

Land equipment spares 206,345 165,765

Aircraft spares 144,488 135,387

Sonobuoys, parts and accessories 148,338 130,176

Medical equipment 104,434 117,113

Packaging, preserving and storing material 48,075 36,787

Fuel, petroleum and oil 34,482 37,448

Sports, recreational, athletic equipment and supplies 28,703 1,994

Lighting, distribution, control equipment and parts 26,278 20,151

Miscellaneous 108,174 88,831

Total inventory 5,666,785 5,810,642

The cost of consumed inventory recognized as an expense in the Consolidated Statement of Operations and Departmental Net

Financial Position is $608 million in 2017-18 ($795 million in 2016-17).

The department is undergoing a review of its business processes related to the valuation of inventory. An analysis completed in

2017-18 resulted in an allowance of $122 million ($154 million in 2016-17), which is reflected in the table above.

*Certain comparative figures have been reclassified to conform to the current year’s presentation.




15. Tangible capital assets

The following table presents details of the cost of tangible capital assets:


Balance beginning of year

(Restated note 20) Adjustments (1) Acquisitions Disposals and

write-offsBalance

end of year

Land, buildings and works

Land 86,259 0 0 0 86,259

Buildings 10,107,501 285,562 40,212 (11,182) 10,422,093Works 2,642,494 60,710 8,068 (468) 2,710,804

12,836,254 346,272 48,280 (11,650) 13,219,156

Machinery and equipment

Machinery and equipment 7,407,286 (251,829) 142,550 (42,610) 7,255,397

Informatics hardware 7,228,723 (55,576) 164,941 (1,688,047) 5,650,041

Informatics software 954,170 12,745 15,361 (34) 982,242

Arms and weapons 5,815,711 526,984 50,478 (253,411) 6,139,762 Other equipment 147,357 (5,253) 8,437 (2,714) 147,827

21,553,247 227,071 381,767 (1,986,816) 20,175,269

Ships, aircraft and vehicles

Ships and boats 14,352,539 360,188 22,046 (1,037,264) 13,697,509

Aircraft 19,459,275 155,062 10,980 (84,121) 19,541,196

Non-military motor vehicles 1,040,046 10,059 91,891 (44,589) 1,097,407

Military vehicles 1,634,623 (4,583) 24,314 (34,108) 1,620,246 Other vehicles 470,872 (30,679) 32,397 (3,185) 469,405

36,957,355 490,047 181,628 (1,203,267) 36,425,763

Leasehold improvements Leasehold improvements 91,106 44,544 0 (10,045) 125,605

91,106 44,544 0 (10,045) 125,605

Leased tangible capital assets Buildings 155,400 (4,044) 0 0 151,356

Other equipment 48 0 0 0 48 Aircraft 691,286 0 0 0 691,286

846,734 (4,044) 0 0 842,690

Assets under construction Buildings 813,163 (337,657) 485,573 0 961,079

Engineering works 177,102 (46,489) 162,425 0 293,038

Informatics software 199,087 (29,633) 55,201 (4,432) 220,223 Equipment 4,700,059 (1,267,036) 2,197,703 (18,775) 5,611,951

5,889,411 (1,680,815) 2,900,902 (23,207) 7,086,291

Gross tangible capital assets 78,174,107 (576,925) 3,512,577 (3,234,985) 77,874,774

(1) Adjustments represent adjustments to asset pooled items (API), assets under construction put into use and reclassifications.

During 2017-18, the department transferred in the building (net book value of one dollar) from Innovation, Science and Economic

Development Canada; machinery and equipment (net book value of one dollar) from National Research Council; and other

equipment (total cost of $14.9 million) from Canadian Space Agency. Also during 2017-18, the department transferred out

machinery and equipment (net book value of one dollar) to National Research Council; machinery and equipment (total cost

of $40,000) to Canadian Nuclear Safety Commission; and vehicle (net book value of one dollar) to Royal Canadian Mounted

Police. These transfers are included in the adjustments column.




15. Tangible capital assets (continued)

The following table presents details of the amortization of tangible capital assets and its net book value:


Balance beginning of

year (Restated note 20) Adjustments Amortization

Disposals and

write-offsBalance

end of year

Net Book Value

2018


Land, buildings and works

Land 0 0 0 0 0 86,259 86,259

Buildings 4,445,339 3,216 264,730 (8,776) 4,704,509 5,717,584 5,662,162

Works 1,500,047 0 74,597 (303) 1,574,341 1,136,463 1,142,447

5,945,386 3,216 339,327 (9,079) 6,278,850 6,940,306 6,890,868

Machinery and equipment

Machinery and equipment 5,589,293 (326,502) 234,317 (39,638) 5,457,470 1,797,927 1,817,993

Informatics hardware 6,504,050 (113,017) 138,593 (1,685,089) 4,844,537 805,504 724,673

Informatics software 605,890 107 68,314 (22) 674,289 307,953 348,280

Arms and weapons 3,000,041 (114,564) 190,693 (182,768) 2,893,402 3,246,360 2,815,670

Other equipment 121,036 (1,449) 8,035 (1,874) 125,748 22,079 26,321

15,820,310 (555,425) 639,952 (1,909,391) 13,995,446 6,179,823 5,732,937

Ships, aircraft and vehicles

Ships and boats 9,430,041 88,266 662,446 (1,033,939) 9,146,814 4,550,695 4,922,498

Aircraft 11,417,126 (118,400) 677,304 (84,121) 11,891,909 7,649,287 8,042,149

Non-military motor vehicles 659,546 (16,595) 77,137 (42,026) 678,062 419,345 380,500

Military vehicles 1,331,349 (11,489) 65,299 (33,115) 1,352,044 268,202 303,274

Other vehicles 318,908 (27,684) 19,517 (2,819) 307,922 161,483 151,964

23,156,970 (85,902) 1,501,703 (1,196,020) 23,376,751 13,049,012 13,800,385

Leasehold improvements

Leasehold improvements 44,788 0 6,331 (6,461) 44,658 80,947 46,318

44,788 0 6,331 (6,461) 44,658 80,947 46,318

Leased tangible capital assets Buildings 87,439 (590) 6,702 0 93,551 57,805 67,961

Other equipment 48 0 0 0 48 0 0

Aircraft 566,240 0 33,535 0 599,775 91,511 125,046

653,727 (590) 40,237 0 693,374 149,316 193,007

Assets under construction Buildings 961,079 813,163

Engineering works 293,038 177,102

Informatics software 220,223 199,087

Equipment 5,611,951 4,700,059

7,086,291 5,889,411

Total 45,621,181 (638,701) 2,527,550 (3,120,951) 44,389,079 33,485,695 32,552,926




15. Tangible capital assets (continued)

The department has $19.7 million ($24.5 million in 2016-17) in net book value of capital assets with an original

acquisition cost of $1,998 million ($3,768 million in 2016-17) that have been declared surplus. These assets have been

written down to their net realizable value in the Consolidated Statement of Financial Position.

16. Contingent liabilities

Contingent liabilities arise in the normal course of the operations of the department and their ultimate disposition is

unknown. The department is involved in contingent liabilities on claims and litigations.

Claims and litigations

Claims have been made against the department in the normal course of operations. These claims include items with

pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is

significant, their outcomes are not determinable. The department has recorded an allowance for claims and litigations

where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and

litigations for which the outcome is not determinable and a reasonable estimate can be made by management

amount to approximately $371.3 million ($50.6 million in 2016-17) at March 31, 2018.

17. Contractual obligations and contractual rights

(a) Contractual obligations

The nature of the department’s activities may result in some large multi-year contracts and obligations whereby the

department will be obligated to make future payments when the services/goods are received. Contractual obligations

over $10 million that can be reasonably estimated are summarized as follows:

(in thousands of dollars) 2018-19 2019-20 2020-21 2021-22

2022-23 and

thereafter Total

Fixed Assets 1,909,941 1,779,251 900,288 476,187 1,056,968 6,122,635

Purchases 3,180,146 1,686,226 1,477,016 1,207,546 6,474,350 14,025,284

Total 5,090,087 3,465,477 2,377,304 1,683,733 7,531,318 20,147,919




17. Contractual obligations and contractual rights (continued)

(b) Contractual rights

The activities of the department sometimes involve the negotiation of contracts or agreements with outside parties

that result in the department having rights to both assets and revenues in the future. They principally involve leases of

property and sales of goods and services. Major contractual rights that will generate revenue in the future years and

that can be reasonably estimated are summarized as follows:

(in thousands of dollars) 2018-19 2019-20 2020-21 2021-22 2022-232023-24 and

thereafter Total(1)

Support services 0 0 0 0 0 31,053 31,053

Total 0 0 0 0 0 31,053 31,053

(1) The disclosed contractual rights pertain to an In Service Support Contract for helicopters that gives rise to royalties as well as

consideration. In accordance with the contract, consideration will be provided in the form of a credit of $31M that cannot be

activated prior to fiscal year 2023-24 and must be used by end of fiscal year 2028-29. Also, the department will earn royalties for

future helicopter sales. As there are no anticipated sales as at March 31, 2018, this amount is currently reported as nil.

18. Related party transactions

The department is related as a result of common ownership to all government departments, agencies, and Crown

corporations. Related parties also include individuals who are members of key management personnel1 or close family

members of those individuals, and entities controlled by, or under shared control of, a member of key management

personnel or a close family member of that individual.

The department enters into transactions with these entities in the normal course of business and on normal trade terms.

The department did not identify any material transactions that occurred at a value different from that which would have

been arrived at if the parties were unrelated.

(1) For the departmental financial statements, key management personnel (KMP) are defined as the Associate Deputy Minister,

Assistant Deputy Ministers (ADM), other executives at the EX-4 and EX-5 level, including military equivalents, and members of

governing management boards.




18. Related party transactions (continued)

(a) Common services provided without charge by other government departments

During the year, the department received services without charge from certain common service organizations, related

to accommodation, legal services, the employer’s contribution to the health and dental insurance plans and workers’

compensation coverage. These services provided without charge have been recorded at the estimated cost in the

department’s Consolidated Statement of Operations and Departmental Net Financial Position as follows:


Employer's contributions to the health and dental plans paid by Treasury Board of Canada Secretariat

789,778 696,250

Accommodation provided by Public Services and Procurement Canada 59,736 66,033

Worker's compensation coverage provided by Employment and Social Development Canada

6,533 7,260

Legal services provided by Department of Justice Canada 2,936 4,013

Total 858,983 773,556

The government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and

economic delivery of programs to the public. As a result, the government uses central agencies and common service

organizations so that one department performs services for all other departments and agencies without charge. The

costs of these services, such as the payroll and cheque issuance services provided by Public Services and

Procurement Canada and audit services provided by the Office of the Auditor General are not included in the

department’s Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with other government departments


Expenses – other government departments and agencies 1,207,277 1,226,786

Revenues – other government departments and agencies 16,316 18,392

Expenses and revenues disclosed in (b) exclude common services provided without charge, which are already

disclosed in (a).

19. Segmented information

The presentation by segment is based on the department’s program alignment architecture as stated in note 1. The

presentation by segment is based on the accounting policies as described in the Summary of significant accounting

policies in note 2. The following table presents the expenses incurred and revenues generated for the main program,

by major object of expense and by major type of revenue. The segment results for the period are as follows:




19. Segmented information (continued)

(in thousands of dollars) DCSO(1) DSCG(2) DRFEP(3) DCEP(4)

Operating expenses

Salary and employee benefits 1,148,063 372,323 3,991,956 6,353,737

Amortization 670 19 354 2,522,410

Professional and special services 178,991 27,310 66,466 1,900,664

Repair and maintenance 19,223 1,008 8,624 1,249,248

Expenses related to tangible assets 14,040 2,308 35,873 713,068

Materials and supplies 76,830 31,264 304,828 420,186

Transportation and communication 69,254 27,875 141,727 475,982

Other services 26,675 9,223 51,503 335,624

Accommodation 15,503 9,575 21,550 133,357

Equipment and other rentals 21,761 15,674 77,954 58,046

Utilities 2,111 459 473 165,120

Loss on disposals and write-offs and write-downs of assets 90,260 0 0 0

Bad debts 950 373 1,449 23,833

Interest on capital lease payments 70,251 0 0 (58,274)

Advertising, printing and related services 3,395 510 1,267 10,777

Other expenses 31,563 18,443 198,106 378,079

Total operating expenses 1,769,540 516,364 4,902,130 14,681,857Transfer payments

Transfers to other countries and international organizations 145,712 25 1,400 0

Transfers to other levels of government 0 8 0 588

Transfers to non-profit organizations 0 4,956 0 0

Transfers to individuals 0 0 0 1,824

Total transfer payments 145,712 4,989 1,400 2,412 Total expenses 1,915,252 521,353 4,903,530 14,684,269Revenues

Sale of goods and services 113,758 1,820 8,103 245,865

Gains on disposals of assets 99 22 6,307 18,653

Interest and gains on foreign exchange 602 12 655 8,485

Revenues earned on behalf of government 0 0 (809) 0

Other 1 370 34 2,102

Total revenues 114,460 2,224 14,290 275,105

Net cost from continuing operations 1,800,792 519,129 4,889,240 14,409,164




19. Segmented information (continued)

(in thousands of dollars) DCDR(5) IS(6) 2018


Operating expenses

Salary and employee benefits 315,251 409,626 12,590,956 9,421,262 Amortization 4,096 1 2,527,550 2,624,309Professional and special services 82,043 16,867 2,272,341 1,997,954 Repair and maintenance 5,379 1,863 1,285,345 1,318,168 Expenses related to tangible assets 8,171 (1,412) 772,048 1,054,818 Materials and supplies 7,351 (11,717) 828,742 901,457 Transportation and communication 17,306 2,406 734,550 782,497 Other services 55,577 59,127 537,729 494,876 Accommodation 1,853 2,060 183,898 190,151 Equipment and other rentals 989 639 175,063 176,155 Utilities 88 (1,116) 167,135 172,052 Loss on disposals and write-offs and write-downs of assets 0 0 90,260 167,918 Bad debts 2,074 3,128 31,807 40,238 Interest on capital lease payments 0 0 11,977 16,148 Advertising, printing and related services 1,284 1,121 18,354 14,963 Other expenses 42,854 147,111 816,156 177,118

Total operating expenses 544,316 629,704 23,043,911 19,550,084 Transfer payments

Transfers to other countries and international organizations 0 0 147,137 140,331 Transfers to other levels of government 0 0 596 5,148 Transfers to non-profit organizations 131 0 5,087 4,911 Transfers to individuals 0 0 1,824 2,161

Total transfer payments 131 0 154,644 152,551 Total expenses 544,447 629,704 23,198,555 19,702,635Revenues

Sale of goods and services 1,868 13,007 384,421 409,778 Gains on disposals of assets 246 1,740 27,067 18,291 Interest and gains on foreign exchange 239 8,919 18,912 15,170 Revenues earned on behalf of government (1,815) (7,763) (10,387) (10,192)Other 0 11,191 13,698 14,779

Total revenues 538 27,094 433,711 447,826

Net cost from continuing operations 543,909 602,610 22,764,844 19,254,809

(1) DCSO Defence Combat and Support Operations (4) DCEP Defence Capability Element Production

(2) DSCG Defence Services and Contributions to Government (5) DCDR Defence Capability Development and Research

(3) DRFEP Defence Ready Force Element Production (6) IS Internal Services




20. Accounting changes

Restatement of previous year’s results

The department is undergoing a multi-year review of its business processes related to the recording and valuation of

tangible capital assets. In 2017-18, this review identified capital assets that should have been reported in previous fiscal

years and adjustments to remove non-capital expenditures.

The effect of the resulting retroactive adjustments are presented below:


2017As previously

statedEffect of changes

2017 Restated

Consolidated Statement of Financial Position Tangible capital assets (note 15) 32,640,145 (87,219) 32,552,926Total non-financial assets 39,179,184 (87,219) 39,091,965Departmental net financial position 37,224,044 (87,219) 37,136,825

Consolidated Statement of Operations and Departmental Net Financial Position

Total expenses 19,623,843 78,792 19,702,635Net cost from continuing operations 19,176,017 78,792 19,254,809Net cost of operations after government funding and transfers (222,361) 78,792 (143,569)Departmental net financial position – beginning of year 37,001,683 (8,427) 36,993,256Departmental net financial position – end of year 37,224,044 (87,219) 37,136,825

Consolidated Statement of Change in Departmental Net Debt Net cost of operations after government funding and transfers (222,361) 78,792 (143,569)Amortization of tangible capital assets (2,545,517) (78,792) (2,624,309)Total change due to tangible capital assets 80,991 (78,792) 2,199

Consolidated Statement of Cash Flows Net cost of operations before government funding and transfers 19,176,017 78,792 19,254,809Amortization of tangible capital assets (2,545,517) (78,792) (2,624,309)

21. Comparative information

Certain comparative figures have been reclassified to conform to the current year’s presentation.


Annex to the Statement of Management Responsibility Including – Internal Control Over Financial Reporting (ICFR)Assessment of ICFR and the Action Plan for the fiscal year ending March 31, 2018

1. Introduction

This document provides summary information on the

measures taken by the department to maintain an

effective system of internal control over financial

reporting (ICFR), including information on internal control

management, assessment of results and related action

plans. Fiscal year 2017-18 marks the first fiscal year of

the department’s ongoing monitoring status as it relates

to a system of ICFR.

Detailed information on the department’s authority,

mandate and program activities can be found in the

2017-18 Departmental Results Report and the 2018-19

Departmental Plan.

2. Departmental system of ICFR

2.1 Internal control management

The department has a well-established governance

and accountability structure to support departmental

assessment efforts and oversight of its system of internal

control. A departmental internal control management

framework, approved by the Deputy Minister (DM), is

in place and includes:

• Organizational accountability structures as they

relate to internal control management to support

sound financial management, including roles and

responsibilities of senior managers in their areas of

responsibility for control management;

• A focused internal control management group under

the Chief Financial Officer (CFO) to monitor the

effectiveness of ICFR across the department, including

reporting on deficiencies and providing assistance to

business process owners in the implementation of

ICFR;

• An internal financial attestation process in support

of certification by the DM and CFO, whereby senior

departmental executives who report to the DM attest

that they have maintained an effective system of

internal control over financial reporting in their area

of responsibility;

• A Defence Ethics Program which is a comprehensive

values-based program put in place to meet the needs of

the department and the Canadian Armed Forces (CAF),

at both the individual and the organizational levels;

• A comprehensive Fraud Risk Management strategy

that is designed to protect the department’s resources

from fraud, waste and abuse through a prevention and

detection framework;

• Ongoing communication and training on statutory

requirements, and policies and procedures for sound

financial management and control;

• Regular monitoring of internal control management

by Internal Audit as well as the provision of related

assessments of results and action plans to the Deputy

Minister, the Departmental Audit Committee and

departmental senior management; and

• A Departmental Audit Committee (DAC) that has

oversight on the adequacy and functioning of the

department’s risk, management and control and

governance framework and processes.

2.2 Service arrangements relevant to financial statements

The department relies on other organizations for the

processing of certain transactions that are recorded in

its Departmental Financial Statements as follows:

(i) Common Arrangements:

• Public Services and Procurement Canada (PSPC)

centrally administers the payments of civilian salaries,

pension, and the procurement of goods and services

as per the delegation of authority of other government

organizations. PSPC also administers the Receiver

General Central Systems used to make payments on

behalf of the department;

• The Treasury Board of Canada Secretariat provides

services related to public sector pension and insurance

for the Defence Team and centrally administers

payment of the employer’s share of contributions

toward statutory employee benefit plans (i.e., the

Public Service Pension Plan, Employment Insurance

Plan, Canada Pension Plan, Québec Pension Plan and



Public Service Supplementary Death Benefit Plan) on

behalf of the department;

• Shared Services Canada provides information

technology infrastructure services and support to the

department, such as but not limited to, email, data

centres and network services;

• The Department of Justice provides legal services to

the department, as well as information for establishing

the contingent liability note to the financial statements

and for inclusion in the Public Accounts of Canada; and

• PSPC provides Pension services to Canadian Armed

Forces members.

(ii) Specific Arrangements:

• Defence Construction Canada provides contracting,

construction contract management and payment

processing services as well as infrastructure support to

the department in accordance with the Memorandum

of Understanding between the two organizations and

as per the department’s Delegation of Authorities

instrument; and

• The Office of the Superintendent of Financial

Institutions provides the department with the accrued

severance liability amount for the CAF.

3. Departmental assessment results during fiscal year 2017-18

Fiscal year 2017-18 marked the first full year of ongoing

monitoring for the department.

The department is one of the largest and most complex

organizations in the Government of Canada with annual

expenditures of over $22 billion, revenues of $400 million

and net assets in excess of $37 billion managed in a

highly decentralized operating and financial environment.

There are three separate payroll systems, two of which

are currently undergoing major transformations, which

annually expend more than $9 billion in salaries and

benefits to more than 100,000 Regular and Reserve

Force military members as well as civilian employees.

Furthermore, there are two major Enterprise Resource

Planning systems, Defence Resource Management

Information System and Human Resource Management

System, which support the business and extend to every

operational area of the department.

The department’s five-year rotational ICFR ongoing

monitoring plan is developed on a risk informed basis

using methodology outlined in the department’s Internal

Control over Financial Management (ICFM) Ongoing

Monitoring Framework approved by the CFO. ICFM is a

broad set of measures and activities that provide

reasonable assurance of the effectiveness and efficiency

of the financial management activities of a department.

ICFR is a subset of ICFM focusing uniquely on providing

reasonable assurance of the accuracy and completeness

of the department’s financial statements. Departments

are currently only required to report on the ICFR

component of ICFM in this Annex.

Annually a risk assessment is completed and the

rotational plan is updated as required. Due to the

complexity of operations, the department has opted

to create an ongoing monitoring rotational plan at the

sub-process level. That is to say, that each business

process has further been divided into sub-processes,

and the rotation plan has been developed on that basis.

As a result, although a business process is identified for

assessment in a given fiscal year, it is possible that only a

subset of sub-processes are assessed within a fiscal year.

Each element in the table below will undergo a complete

assessment at least once every five years.

ICFR ongoing monitoring assessments involve the review

and testing of previously identified key controls within

business processes to confirm that the design of these

controls continue to address key financial risks and that

these controls continue to operate effectively.

The following table summarizes the status of the ongoing

monitoring activities according to the previous fiscal

year’s rotational plan.



3.1 New or significantly amended key controls

The implementation of the government pay system,

Phoenix, required some changes to internal pay

processes and controls. Implementation of these controls

and associated quality assurance programs continue.

A full assessment of the civilian payroll process will be

conducted in fiscal year 2020-21 as per the department’s

rotational ongoing monitoring plan.

3.2 Ongoing monitoring program

As part of its rotational ongoing monitoring plan, the

department completed its assessments of civilian pay,

inventory, capital assets, procure to pay, and financial

reporting and close. These assessments did not highlight

any new control gaps not previously identified. As a

result of the monitoring, two common themes emerged:

(a) automated controls were found to be more effective

than manual controls, and, (b) lack of consistent

documentation related to the performance of certain

controls. Additionally, there were findings related to

some account verification, custody of goods, and

work-in-progress controls. Management action plans are

being developed to address the deficiencies identified.

3.3 Status of transformational modernization projects

As a result of the department’s completion of initial

design and operating effectiveness assessments, several

modernization projects were conceived relating mainly to

the automation of control mechanisms. The department

has moved forward several key projects including

developing a Post Payment Verification for Pay, one

of the first departments to do so. In addition, the

department has developed solutions which result in

improved efficiencies.

Modernization and transformation remain a high priority

for the department. The department’s priorities for

2018-19 will continue to improve business processes

efficiencies and to strengthen controls through

automation.

Progress during fiscal year 2017-18

Previous year’s rotational ongoing monitoring plan for current year

Status

Civilian Pay Completed as planned; remediation action plans under development

Inventory Completed as planned; remediation actions developed

Capital Assets Completed as planned; remediation actions developed

Procure to Payment Completed as planned; remediation actions substantially developed

Financial Reporting and Close Completed as planned; remediation complete

Remediation LiabilityTesting completed as planned; reports including conclusions and remediation action plans to be completed in fiscal 2018-19

Real PropertyTesting completed as planned; reports including conclusions and remediation action plans to be completed in fiscal 2018-19

Military Regular & Reserve Force Payroll Deferred to fiscal year 2018-19

The key findings and significant adjustments required from the current year’s assessment activities are summarized below.



Rotational Ongoing Monitoring Plan

2018-19 2019-20 2020-21

Entity Level Controls No Yes No

IT General Controls Yes Yes Yes

Financial Reporting and Close No Yes No

Procure to Payment No Yes No

Inventory Yes Yes Yes

Capital Assets Yes Yes Yes

Real Property Yes Yes Yes

Civilian Pay No No Yes

Military Regular Force Pay Yes No No

Military Reserve Force Pay Yes No No

Remediation Liability No Yes No

4. Departmental action plan for the next fiscal year and subsequent years

The department’s rotational ongoing monitoring plan over the next three fiscal years, based on an annual validation of

the high-risk processes and controls and related adjustments to the ongoing monitoring plan as required, is shown in

the following table.


INDEX

Accounting changes (note 20) .............................................................................................................................................................................. 34

Accounts payable and accrued liabilities (note 4) ....................................................................................................................................... 15

Accounts receivable (note 11).................................................................................................................................................................................. 25

Authority and objectives (note 1) ......................................................................................................................................................................... 6

Canadian Forces pension and insurance accounts (note 8).................................................................................................................... 20

Comparative information (note 21) ...................................................................................................................................................................... 34

Contingent liabilities (note 16) ................................................................................................................................................................................ 29

Contractual obligations and contractual rights (note 17) ......................................................................................................................... 29

Deferred revenue (note 7) ........................................................................................................................................................................................ 19

Deposits and trust accounts (note 6) ................................................................................................................................................................. 19

Employee future benefits (note 10) ..................................................................................................................................................................... 23

Environmental liabilities (note 5) .......................................................................................................................................................................... 16

Inventory (note 14) ....................................................................................................................................................................................................... 26

Lease obligations for tangible capital assets (note 9) ............................................................................................................................... 22

Loans and advances (note 12) ................................................................................................................................................................................ 25

Parliamentary authorities (note 3) ....................................................................................................................................................................... 14

Prepaid expenses (note 13) ...................................................................................................................................................................................... 25

Related party transactions (note 18) ................................................................................................................................................................... 30

Segmented information (note 19) ......................................................................................................................................................................... 31

Summary of significant accounting policies (note 2) ................................................................................................................................. 9

Tangible capital assets (note 15) ............................................................................................................................................................................ 27

Documents

CONSOLIDATED DEPARTMENTAL FINANCIAL STATEMENTS …